'Roll back the tax cuts': An exercise in shady financing

'Roll back the tax cuts': An exercise in shady financing

It's an election year, so politicians are merrily promising
voters all kinds of shiny new programs.

Promising government goodies is easy. Paying for them is
hard.

Luckily, liberals have discovered a source of inexhaustible
funding. It's called "Rolling back the Bush tax cuts for the rich."
Apparently it can pay for, well, everything.

Expand health insurance coverage? No problem, says Sen. Barack
Obama, just roll back the tax cuts. Plug the funding hole for
Social Security? Roll back the cuts. Fix aging infrastructure? Roll
'em back. Why, we can even cut taxes for the middle class if we
just roll back the rich folks' cuts.

To those on the left, "the Bush tax cuts for the rich" are the
golden goose that keeps on laying. But just like that goose, it's a
myth.

Here's why. Repealing the part of the 2001 and 2003 stimulus
packages that eased taxes on wealthier Americans, while retaining
breaks for other households, could indeed generate billions in new
government revenues - about $50 billion in each of the next two
years. That's serious money - enough to, say, fund extended health
coverage for two years without adding to the deficit.

But there's a catch. The goose stops laying in two years. The
tax cut is already set to expire after 2010. After that, the IRS
starts soaking the rich again. Moreover, the proceeds from that
soaking are already figured into those gloomy, long-term spending
and deficit forecasts. In other words, it's already spoken for.

But that doesn't faze the roll-back crowd. They simply respond
with "creative" accounting.

Here's their spin: "Well yes, it's true that the Bush cuts are
already scheduled to roll back. And it's also true that even in
Washington you can't repeal the same cut twice to raise money. But
we should assume that Congress will act to restore the cuts once
they expire. Then, we can repeal the restored cuts, and that will
generate billions in "new" revenue.

I don't make up this stuff. They want us to assume that Speaker
Pelosi & Co. will pass big tax breaks for wealthy Americans.
And we are also to believe that - maybe even on the same day -
they'll "roll back the tax cut." Somehow, magically, this
now-you-see-it, now-you-don't tax cut will raise billions from the
rich. This way, politicians can pay for all their proposed new
spending without adding any red ink. Understand?

It's certainly a creative way to raise money. Why not make it
work for you?

Say you want $20,000 for a new car. No sweat. Just ask your boss
to (1) cut your salary by $20,000 and (2) give you a $20,000 raise
the next day. What's not to like? He has repealed your pay cut by
giving you a raise. And, according to the politicians' logic, you
now have an extra 20 grand to spend on a car. You're happy. The
boss is happy. The golden goose lives on.

In the real world, of course, this kind of creative financing
leads normal people to bankruptcy and accountants to jail. In
Washington, it pays for new programs.

But shady accounting goes only so far, even in Washington. Pols
may fast-talk their way through TV ads or election debates, but the
Congressional Budget Office, the non-partisan body that officially
"scores" legislative proposals, is not easily duped. And in report
after report the CBO blows the whistle on this flim-flam. The CBO
states the simple truth: "Rolling back the Bush tax cuts" does not
generate new money after 2010 because they were never projected to
exist past then.

It's tough to pay for more expansive health programs (or other
permanent entitlements, for that matter) with nonexistent revenues.
It's especially hard when government can't even make good on its
existing promises without either piling up ruinous debt or imposing
huge tax hikes for all taxpayers, not just the rich.

According to the CBO, raising federal income tax rates to pay
for current programs would require all rates to nearly double over
the next 40 years. So by the time today's newborns hit middle age,
lower-income earners would be paying a 19 percent rate rather than
today's 10 percent rate. Middle class earners would pay 47 percent,
not today's 25 percent. High earners - be they individuals or
corporations - would be paying 66 percent, instead of 35 percent.
And that's before any state taxes or payroll taxes.

Little wonder the CBO calls this scenario "not economically
feasible." It would "significantly reduce economic activity" and
lead to serious tax evasion, a recent letter from the CBO
contends.

Of course, evasion is with us now. Politicians who suggest bogus
ways to "pay" for their election-year promises are evading fiscal
reality and the obligation to provide honest leadership on serious
policy matters.

It's time they faced the fact that their "creative" accounting
simply doesn't add up.

Stuart Butler is
vice president for domestic policy issues for The Heritage
Foundation.